Decisions of the Administrative Court ZH (April 2021)

Overview of the tax law decisions of the Zurich Administrative Court published in April 2021.

VGr ZH, 3 February 2021, SB.2020.00074: Tax jurisdiction (this decision is not yet final): The complainant GmbH had its statutory seat at the private residence of the sole shareholder and managing director in the canton of Zurich since its foundation in 2012. In 2014, it moved its registered office to another canton. In dispute is where the principal tax domicile of the personal company is located. The Administrative Court considered that the arguments of the Tax Appeals Court clearly suggested that the complainant's tax domicile was most likely in the Canton of Zurich. The complainant had not succeeded in overturning this presumption. Dismissal of the taxpayer's appeal.
VGr ZH, 13 January 2021, SB.2020.00100: Non-payment of the final invoice: Applicable interest rate (appeal pending at the Federal Supreme Court): After an objection against the assessment decision was partially approved, the taxpaying couple received a corrected final invoice and interest statement. An appeal filed by the taxpayers was dismissed by the Tax Appeals Court some three years later. It was not until after the appeal decision that the taxpayers settled the outstanding tax claim in accordance with the corrected final invoice. Subsequently, the tax office settled the accrued interest separately and charged default interest (4.5% p.a.) after the expiry of the payment deadline of the corrected final invoice. The taxpayers argued before the Administrative Court that only the compensatory interest (0.5% p.a.) was due on the tax amount. The Administrative Court held that the taxpayers wrongly assumed that the outcome of the appeal proceedings would determine whether the compensatory interest or the default interest would be applied. It is true that if the tax factors are changed by an appellate court, a new final account with a new calculation of interest is drawn up. If, on the basis of the new final invoice, there is a residual balance in favour of the tax office, this must be paid within 30 days and interest on arrears must be paid on this amount if the payment deadline is not met. If the taxpayer had already been in arrears with the payment of the tax arrears according to the previous final invoice, a transformation of the previously owed default interest into compensatory interest did not take place, as it were, with the issuance of the new final invoice. In the present case, the debtors had waited for the outcome of the appeal proceedings before paying the corrected final account. Since the taxpayers had been in arrears for around three years, the tax office's default interest bill proved to be justified. Dismissal of the taxpayers' appeal.
VGr ZH, 11 November 2020, SB.2020.00081: Tax withholding (payment by instalments ) (this decision is final): Due to lower income during the Corona crisis, the taxpaying couple requested the municipal tax office to adjust the previously agreed instalment payment agreement. The communal tax office rejected the request, but the cantonal tax office approved an appeal filed against it. The Administrative Court upheld the commune's appeal and rejected the taxpayer's request for further payment relief. It justified this on the grounds that the taxpayers had hardly provided any evidence of their current financial situation and had expressly confirmed that they were not living at subsistence level. It was therefore not evident why they could not make the instalments demanded by the municipal tax office on time, given reasonable restrictions on their living costs. Appeal of the municipal tax office upheld.
VGr ZH, 4 November 2020, SB.2020.00073: International tax segregation/double taxation in the international relationship (this decision is final): The taxpayer is domiciled in Germany and is subject to limitedtaxation in the Canton of Zurich due to real estate ownership. Before the Administrative Court, she requested that debts and interest on debts should exceptionally be excluded on an object basis in the international relationship, as she would otherwise not be able to deduct them in her country of residence and there would be unconstitutional double taxation. The Administrative Court held that debts and interest on debts should also be allocated in the international relationship according to the situation of the assets. The principles of national tax law could not be transferred without further ado to international tax law and double taxation was not per se frowned upon in international relations. The fact that debt and debt interest deductions cannot always be made in full in international relations is a consequence of foreign tax regulations over which Switzerland has no influence and which it also does not have to compensate. In this respect, the Administrative Court dismissed the appeal. However, it partially upheld the appeal and referred the matter back to the Tax Appeals Court, as the allocation of certain assets to the country of residence was not clear.
VGr ZH, 22 October 2020, SB.2020.00082: Appeal in case of request for higher assessment (this decision is final): The taxpayer requested a higher assessment of certain property tax values. The Administrative Court considered that, in principle, a taxpayer had no interest worthy of protection in an increase of its tax factors. Since the submissions of the taxpayer were limited to pointing out general (virtual) legal disadvantages without substantiating such disadvantages in concrete terms, the taxpayer lacked standing in the present case, which is why the lower court had rightly disregarded the complaints in this regard. Dismissal of the taxpayer's appeal.
VGr ZH, 28 August 2020, SB.2020.00041: Waiver of inheritance tax and supplementary taxes (this decision is final): With regard to inheritance tax, the Administrative Court concluded that the lower court was right not to grant the waiver request because it had been paid without reservation. The fact that the inheritance tax would not have been due after the already planned marriage with the deceased did not constitute a hardship justifying remission. It also refused to grant remission of the subsequent taxes and fines, since the voluntary waiver of income, the legally unnecessary disposal of assets in favour of relatives, the taxpayers' asset and debt situation and the failure to form provisions precluded such remission. Dismissal of the taxpayers' appeals.
VGr ZH, 23 November 2020, SR.2020.00024: Breach of retention period in case of lump-sum withdrawal from second pillar (this decision is final): The taxpayer bought into the pension fund in 2011 and 2012. In 2013, he received a lump-sum benefit from the 2nd pillar and simultaneously transferred an amount from the 3rd pillar to the 2nd pillar. The Administrative Court considered that the purpose of the freeze period of Art. 79b para. 3 LOB is to exclude any payment made during the three-year freeze period from income deduction in the event of a subsequent lump-sum withdrawal. A previous lump-sum withdrawal cannot be neutralised by (tax-neutral) transfer payments from the third to the second pillar. Dismissal of the taxpayer's appeals.
VGr ZH, 24 February 2021, SB.2019.00030: commercial trading in participations (appeal pending before the Federal Supreme Court): The offsetting of additional management fees and the taxation of a capital gain from a sale of shares or participations (or the qualification of the obligated party as a "participation trader") and their allocation on an accrual basis as well as the neutralisation of a corresponding inflow through corresponding provisions or a guarantee declaration concluded at the same time regarding a subsequent repurchase of the sold participation are in dispute. The Administrative Court confirmed the decision of the lower court both with regard to the timing of the inflow of the shares and with regard to the failure to prove neutralisation (as a result of an alleged guarantee declaration). It held that, since the inflow of income was a purely factual event and the origin and the reason for the inflow were not significant, the set-off of the additional management fees was correct, particularly since these had accrued to the taxpayer in full and without restriction in the 2011 tax period. It was insignificant, inter alia, that the inflows had been declared and/or taxed in other tax periods, since the inflows had effectively occurred in the 2011 tax period. The Tax Appeal Court had rightly assessed the "conduct" of the obligor as an independent sideline activity in an overall view. The Administrative Court also denied a tax reduction comparable to Art. 18b DBG for state and municipal taxes. Dismissal of the taxpayers' appeals.